Malaysia attracts Islamic US funds

MALAYSIA is attracting Islamic investment funds from the US seeking higher returns in Asia as growth in developed economies slows.

“Emerging markets is where we see global growth going for the next couple of decades and the source for a lot better opportunities,” Bryce Fegley, chief investment officer at Saturna Sdn Bhd, the Malaysian unit of Saturna Capital LLC, the biggest syariah-compliant stock fund in the US, said in an interview on August 10. Saturna’s expertise in Islamic finance “steered us to Kuala Lumpur as opposed to Singapore, Hong Kong or other emerging markets,” he said.

Saturna, the Bellingham, Washington-based company that oversees US$2.7 billion (US$1 = RM3.18) of assets, set up Saturna its unit in March and obtained an Islamic finance management licence in May, Fegley said. Franklin Templeton GSC Asset Management Sdn Bhd got approval to offer services that comply with religious principles in January, according to the Malaysian Securities Commission’s website.

The 14 licences issued by the Malaysian government allowing international companies to form Islamic fund-management businesses give tax exemptions until 2016. Foreign ownership rules have also been eased in the global financial hub for services that meet syariah guidelines.

Asia’s accelerating growth is also encouraging HSBC Holdings plc and Standard Chartered plc to set up Islamic units in Malaysia, the world’s biggest market for sukuk and home to more than 16 million Muslims. Funds that have obtained Islamic asset-management licences in Malaysia include Nomura Islamic Asset Management Sdn Bhd, OSK-UOB Islamic Fund Management, Reliance Asset Management (Malaysia) Sdn Bhd, and Aberdeen Asset Management plc, according to data on the Securities Commission’s website.

Overseas investors can own as much as 70 per cent of Islamic investment banks and sellers of takaful, or insurance that complies with religious tenets, up from 49 per cent.

“Malaysia has a comparative advantage because the Islamic finance infrastructure was in place much earlier than other countries,” said Scott Lim, chief executive officer of Kuala Lumpur-based MIDF Amanah Asset Management Bhd, which oversees the equivalent of US$670 million including syariah-compliant equity and debt funds. “Malaysia has a big Muslim population looking for Islamic instruments compared to Hong Kong and Singapore, where there is no such demand,” he said in an interview from Kuala Lumpur on August 13.

Malaysia’s US$93 billion of syariah assets account for 19.6 per cent of the country’s total banking industry, according to Bank Negara Malaysia’s website. The nation has RM279 billion of outstanding Islamic debt, according to data compiled by Bloomberg.

Saturna Capital started the Amana Developing World Fund in the US in September to invest in global emerging-market Islamic assets. The company bought Malaysia’s Alpha Asset Management in March and changed the name to Saturna Sdn Bhd.

Saturna Capital manages Islamic funds including the Amana Income Fund, Amana Growth Fund and the Amana Developing World Fund. Amana Income, which invests in dividend-paying corporations globally, gained 5.6 per cent annually over the past decade, compared with the 0.8 per cent drop in the Standard & Poor’s 500 Index over the same period, according to the company’s website